Following on from my recent post on the strategic planning and implementation process I would like now to consider the technique of scenario planning and where it fits in the strategic planning process. The process was largely pioneered by Shell in the 1960’s as a way to consider the impact of future trends on their business opportunities and is used by them to this day to support much of their strategic planning.
What is Scenario Planning
Scenario planning can, in its largest form, be a process that engages relatively large numbers of personnel for extended periods and develops large, complex visions for the potential future, in its smallest form it can be a desktop exercise undertaken by a small team for a couple of hours to consider the impact of local macro factors on an organisation.
Scenario planning is not, of course, a substitution for strategic planning. Rather it is a powerful way to develop a set of alternative business and cultural backgrounds against which your organisation could be required to operate in the future, as such a well considered scenario planning exercise conducted as part of the strategic planning process can be a very valuable activity.
Why conduct a Scenario Planning Exercise
So, why would you hold a scenario planning session? Scenario planning can be used any time you want to consider how your organisation would be impacted by various potential events in your business space, it could be at the relative micro level of a small business reacting to changing demographics and consumer trends in its area or through its on line customer base, it could be a larger organisation considering how local, national and international events and geopolitics will impact its ability to grow and do business or it could be a government considering how it would deal with large scale developments and changes in country.
In the case of Shell, who I mentioned above, they use scenario planning to consider the environment their business operates in, how changes in energy demand will affect their business and how they could react to different scenario’s. There is a great article, written by Harvard Business Review, on scenario planning which is good to read for additional background. I have also placed a link at the bottom of this article to a superb book on the subject of scenario planning by Kees van der Heijden which I highly recommend.
How is Scenario Planning used
In holding a scenario planning exercise the planning process is very important and will have a large impact on the results obtained. Essentially, for most small scale organisations, the planning process entails establishing an envelope in which the scenario will be conducted. The edges of the envelope are typically the outer limits of changes to the environment in which the organisation operates. So, to use a very simple set of parameters, going back to the coffee shop analogy from the strategic planning article earlier, a couple of scenario envelopes could be associated with trends in coffee selection such as how sustainable the production of the beans used in the whop are and a potential trend toward boutique roasting.
Building scenario’s around these two questions could be used to let the business owner visualise how their business may be affected if they were to operate in a square where the boundaries are set by the decisions of accredited sustainable supply or not and investing in their own roasting equipment or not.
These parameters let the owner then look at the positive and negative impact, cost and potential profit of the following; Sustainable beans and own roaster, sustainable beans and outsourced roasting, non sustainable beans and own roaster and non sustainable beans and outsourced roasting. Each of these four options are then considered against the backdrop of the rest of the business remaining as is to develop a set of risks and opportunities. With the outcomes of the four scenario planning exercises then in hand, the business owners can consider how they want to proceed with their overall business strategy, whether they want to further investigate the options or if they want to discount them completely.
Scenario Planning for Strategy Development
Obviously the example used above is extremely simplistic but hopefully it gives an idea of how scenario planning can contribute to the development of strategy. Properly conceived, framed and exercised a set of scenario’s can give business managers a series of options against which to plan their evolving strategy, it can be used to consider the impact of macro economic changes such as possible downturns in work, changes to tax regimes, changes to demand for products etc. it can also be used by charitable organisations to consider how they would deal with crises, changes in donation patterns etc.
Share your experiences
Do you have experiences with using scenario planning techniques in virtual teams you would like to share? If so, we would love to hear from you.
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